E196｜The Stablecoin War: Circle’s Rise and the New Forces Competing as Traditional Finance Enters the Fray
Summary
Circle’s nearly 4x gain after listing was initially trading the scarcity value of a pure-play regulated stablecoin, not profits already delivered. It priced its IPO at $31 on June 5, implying a valuation of about $6.8B, then closed at $107 on June 6 and reached $115 after hours; Zheng Di viewed the IPO pricing as “fairly reasonable,” while the roughly $25B secondary-market valuation was betting that total stablecoin supply would expand from $250B to $2T by 2028. The real uncertainty is whether USDC’s current roughly 24% share will rise, hold flat, or fall.
The GENIUS Act’s biggest incremental impact is moving stablecoins from the gray zone into payment and settlement tools that traditional finance can use. Can Sun stressed that the bill has not completed the Senate and House processes and that the final text remains unknown; but once a regulatory framework is in place, banks and Wall Street will no longer have to worry whether stablecoins are securities, debt, or bank reserves. Its extraterritorial reach is especially important for offshore issuers: if Tether cannot obtain a U.S. license or equivalent approval recognized by the U.S., the current text could allow trading to be blocked and dollar reserves to be frozen, potentially making continued operation difficult.
USDC’s strongest moat—Coinbase’s liquidity and credibility—is also the biggest constraint on Circle’s ability to unlock profits. The two companies initially each owned 50% of the Centre Consortium; Circle later bought back control for 8.4M shares worth about $210M, while retaining an exceptionally generous revenue-sharing arrangement with Coinbase. Zheng estimates that Coinbase contributes about 22% of USDC holdings but takes roughly 56% of Circle’s revenue, or about $900M last year. As long as two undisclosed KPIs are met, the agreement can automatically renew every 3 years without limit, leading both Can and Zheng to conclude that Circle will find it “fairly difficult” to escape what has been called “a huge unequal treaty.”
USDC’s growth was not a linear victory but an accidental path shaped by DeFi, policy, banking risk, and public-chain ecosystems. Its circulating supply rose from about $400M in early 2020 to $1B during DeFi Summer and nearly $5B in early 2021, reaching about $55B in 2022; but when Silicon Valley Bank failed, Circle had $3.8B, or roughly 8% of its reserves, trapped there, sending USDC to $0.92 within 2 hours. Its supply later fell from about $47B to below $30B. Zheng’s judgment was blunt: “If the Fed had not stepped in urgently… USDC might have been finished.”
The core of Tether’s roughly $13B–$14B in annual net profit is not simply higher Treasury interest on the same asset base, but its willingness to take risks USDC will not. Zheng estimates that about 82% of USDT’s reserves fit the GENIUS Act’s current definition, while the remaining 18% includes 100,000 BTC, 50 tonnes of gold, collateralized loans, and equity investments, generating about $7B in excess returns. Tether also pays almost nothing in promotion fees; counterparties may instead pay for minting and redemption interfaces. Hong Jun described it as a “smart barbarian”（聪明野蛮人）opening up the “Wild West,” while warning that “returns and risks always move together.”
Banks, payment giants, and political capital can all issue stablecoins, but the ability to create liquidity and control distribution channels will determine who survives. Competitors already include bank consortia, Stripe and Bridge, PayPal’s PYUSD, the Trump family’s USD1, and potential Meta payment use cases. Can believes stablecoins will become a “winner-take-all market,” potentially leaving one regulated winner and one offshore winner. Zheng is highly bullish on the industry’s overall size but refuses to predict whether USDT will still lead in 5 years or whether USDC will overtake it—or fall behind: “I don’t know.”
The realistic path to $2T is not teaching consumers to use wallets, but making stablecoins invisible infrastructure for cross-border and business payments before handing the baton to STOs and AI Agents. Zheng calls it a “two-stage rocket”: the next 2–3 years will be driven mainly by B2B payment expansion, followed by STO simplification and “everything on-chain” reigniting transaction demand. Ordinary users will still see credit cards, 7-Eleven remittances, or voice assistants—not private keys and seed phrases. “Educating users is one of the stupidest things”; when mass adoption arrives, users may not even know that stablecoins are handling settlement in the background.
Deep dive
1. Circle’s Surge Was First and Foremost a Scarcity Trade
Hong Jun’s IPO snapshot: Circle listed on the NYSE on June 5 at $31 a share, implying a total market capitalization of about $6.8B. By the June 6 close, it had reached $107, then $115 after hours—nearly 4x in 2 days—with 2 trading halts along the way.
Can’s explanation for the heat goes beyond Circle itself: underwriters including J.P. Morgan and Goldman Sachs are both investors and potential future users of USDC. “It says more about how seriously Wall Street is taking the digital dollar.”
Zheng admitted he had “been too cautious and not aggressive enough.” He viewed the nearly $7B IPO valuation as fairly reasonable; the move to roughly $25B mainly reflected “scarcity value,” not Circle’s current earnings power, which is constrained by Coinbase’s revenue share.
2. Stablecoins Turn 20th-Century Settlement into a 24/7 Digital Dollar
The program’s basic definition: a stablecoin is anchored to the dollar, gold, or another fiat currency. It is not primarily designed for price speculation, but for cross-border payments, payments, trading, and DeFi. At the time of recording, the global market was about $250B, with USDT at roughly $150B, or 62.5%, and USDC at about $61B, or 24%.
Can’s mechanism-level view is that traditional rails such as bank transfers operate for only 30-odd hours a week and remain “20th-century technology.” USDC’s innovation is to digitize the dollar and enable instant trading and settlement around the clock, potentially rebuilding the financial system’s payment layer.
Zheng offered 2 growth anchors: the U.S. government and Standard Chartered have both put forward a $2T stablecoin market by 2028, implying roughly 8x growth in 3 years; Michael Saylor proposed $10T when speaking with the SEC in February. If USDC maintains a 24%–25% share, its supply would need to rise from about $60B to nearly $500B.
3. What GENIUS Really Unlocks Is Entry for Traditional Finance
Can noted that, at the time of recording, the GENIUS Act had passed only a procedural vote. The Senate’s final version, House amendments, and bicameral reconciliation were all unresolved; any market-share forecast therefore needs to remain conditional on the final text.
Early stablecoins were variously treated as securities, debt, or bank reserves. Even in 2022, some people argued that all secondary-market holders should undergo KYC. Can believes those uncertainties explain why traditional finance had long been “afraid to come in.”
Circle’s compliance today mainly comes from state-level and New York DFS regulation of reserves and disclosures, not from an effective federal stablecoin regime. Can’s central judgment is that, whatever GENIUS ultimately says, a clear framework by itself would create a “huge” boost to adoption.
4. Extraterritorial Reach Could End Offshore Regulatory Arbitrage
Under Can’s reading of the current text, an offshore institution issuing a dollar stablecoin and serving U.S. users would have to submit to U.S. oversight or operate in a jurisdiction recognized by the U.S. as providing equivalent regulation. Otherwise, the U.S. could block trading on licensed exchanges and potentially freeze the issuer’s dollar reserves.
The key lever is the dollar correspondent-banking system. Offshore banks holding dollars for Tether still need a U.S. correspondent bank; if that bank rejects the related reserve business, the offshore issuer would struggle to keep operating. Can called the dollar America’s “most powerful weapon aside from its military.”
Hong Jun called GENIUS the “iron band” around Tether, the “prodigal son.” He believes Tether’s team can ultimately meet the requirements, but will need time and effort. Can said whether Tether can satisfy U.S. regulators remains an open question; if it cannot, it may not be able to continue existing. If it can, the competitive field between offshore and onshore issuers should at least become more level.
5. Circle Was Not Born as a Stablecoin Company
When Circle was founded in 2013, it was marketed as “Bitcoin’s Alipay,” with wallets and payments at its core. It later chased the FinTech and crypto-trading booms, acquired Poloniex, and built an OTC block-trading business; in 2018, USDC was just one of several businesses.
China’s 2017 “September 4” ban pushed exchanges offshore and trading pairs gradually away from fiat and toward USDT, while exposing the lack of transparency around USDT’s reserves. Circle saw an opening: the market needed a regulated stablecoin backed by a major exchange.
The field was not empty. Paxos’s USDP, TUSD, Gemini, and exchange-issued stablecoins all entered the market. USDC’s difference was that Circle and Coinbase, America’s largest regulated exchange, jointly formed the Centre Consortium, each holding and controlling 50%.
6. A 2019 “Decisive Amputation” Turned Near Bankruptcy into a Single Bet
Liu Feng’s retrospective: before Circle acquired Poloniex, it had at one point held roughly 60% of the U.S. regulated-exchange market; by the second half of 2019, that share was below 1%. The bear market, liquidity siphoning by offshore exchanges, and pressure to delist tokens deemed securities together left the trading business “unable to move forward.”
Valuation collapsed in parallel. Circle was worth about $3B when it raised money from Chinese investors including IDG in 2018; by 2019, secondary share transfers implied only $700M–$800M. In a pre-IPO essay, founder Jeremy Allaire described the company at the time as “on the verge of bankruptcy.”
Circle ultimately sold Poloniex to Justin Sun and stripped out the exchange, OTC, and other businesses, leaving only the Centre Consortium and its jointly issued USDC with Coinbase. Liu believes today’s success would not have been possible without that “decisive amputation”（壮士断腕）.
7. Coinbase Traded Liquidity and Credibility for Most of USDC’s Economics
Can stressed that the biggest challenge after issuing a stablecoin is not minting but securing trading pairs, market makers, and real liquidity. Without distribution through a major exchange, “this stablecoin simply cannot get off the ground.” Coinbase gave USDC immediate access to users, trading pairs, and the U.S. market.
Credibility was equally irreplaceable. Paxos and other New York DFS-licensed institutions may have operated under stricter regulatory conditions, but crypto users trusted the Coinbase brand more. Can therefore believes Coinbase’s contribution was “well worth it” in helping USDC reach a 25%–30% share among the stablecoins launched in 2018.
In the second half of 2023, the Centre Consortium was shut down and all issuance, governance, and operating rights were transferred to Circle. Coinbase can still share roughly 50% of USDC revenue after issuance and third-party distribution costs, plus receive additional compensation based on the amount held on its platform.
8. Two Agreements Make It Difficult for Circle to Escape Coinbase
Zheng reconstructed 2 agreements from the IPO prospectus attachments: the August 2023 master partnership agreement and the 2024 ecosystem partnership agreement. Circle bought back the other half of the Centre Consortium for 8.4M shares at about $25 each, or $210M in total; those shares were worth roughly $800M at post-listing prices.
The economics are heavier still. Circle generated about $1.6B in revenue last year, spent roughly $1B on promotion, and paid about $900M of that to Coinbase. Management and other expenses added another $500M, leaving $160M in after-tax profit and a net margin of about 10%. Zheng estimates that Coinbase contributes about 22% of holdings but takes roughly 56% of revenue.
Binance’s terms look modest by comparison: a one-time payment of about $60.2M, with a requirement to hold at least 1.5B USDC; it ultimately held about 3B. Zheng says that explains why Binance was unhappy with the differentiated treatment given to Circle and Coinbase.
The 2 key KPIs were redacted as commercial secrets, but if Coinbase meets the thresholds and agrees to renew, the 3-year agreement automatically renews for another 3 years without limit. Under certain payment or regulatory obstacles, Coinbase also has protective provisions allowing it to become a USDC issuer and obtain the related intellectual property. Can and Zheng both believe Circle will find it difficult to escape.
9. The No-Interest Rule Pushes the Partnership into a “Bank or AmEx” Gray Zone
Zheng’s explanation for banning issuers from paying interest is financial stability. If stablecoin companies keep raising yields to win share, eventually someone will return most of the reserve income to users, make no money themselves, and become financially fragile enough to threaten redemption safety.
The actual arrangement is that Circle pays Coinbase promotion fees, while Coinbase uses roughly 4% USDC yields to attract users. Can mentioned Coinbase’s regulated perpetual-futures product, which, if he remembered correctly, had at one point offered roughly 12%. Hong Jun asked whether this was simply “interest paid in disguise.”
Can did not offer a simple yes or no, instead drawing 2 extremes. Banks take deposits, lend them out, and pay interest, which clearly approaches investment and banking activity. American Express charges a 2.9% card fee and rewards users with points or travel benefits, which is a lawful payment incentive.
Circle and Coinbase sit between those 2 ends. Whether the arrangement can continue depends on the final GENIUS text, why users hold USDC, and how the companies design the transaction. The existing agreement requires the parties to negotiate in “good faith” when regulation changes, with the goal of making the arrangement look more like AmEx than an investment fund.
10. Stablecoin Competition Has Coalesced into Political, Distribution, and Use-Case Alliances
Zheng places Tether, Bitfinex, Cantor, and the Lutnick family in the first camp, adding SoftBank, related CEP transactions, and Tether’s stake in Bitdeer to that sphere of influence. He further clarified that the listed companies have equity and reserve-management links with Tether, but no direct legal relationship to USDT issuance.
Circle and Coinbase form the second camp, but so far lack comparable political or consumer-use-case resources. Zheng’s conditional scenario is that if Meta, which is discussing stablecoin cooperation, used Instagram cross-border tipping as a pilot, invested in Circle, and promoted USDC exclusively, it could become a genuine incremental distribution channel. This remains a conditional projection.
The third camp is the Trump family’s USD1, Abu Dhabi’s MGX, and Binance. MGX paid for its $2B investment in Binance entirely in USD1; USD1 first appeared on Ethereum’s Uniswap and PancakeSwap on BNB Chain, then was listed by Binance. Zheng concludes that Binance has clearly shifted toward USD1.
Other forces include Stripe’s acquisition of Bridge and push for USDB, PayPal’s PYUSD, and bank consortium stablecoins being considered by J.P. Morgan, Citi, Wells Fargo, and Zelle. Deutsche Bank and Santander are also considering entry. The future will feature simultaneous competition among banks, payment institutions, technology platforms, and political capital.
11. USDC’s First Major Growth Spurt Came from DeFi and Coinbase Turning Together
From 2018 to 2020, USDC grew slowly, reaching about $400M in circulation in early 2020. DeFi Summer was the first ignition point: on-chain developers preferred USDC, while USDT mainly served centralized exchanges. USDC reached $1B for the first time in mid-2020.
The bull market drove the real scale shift. USDC was already near $5B in early 2021 and reached roughly $55B–$56B in early to mid-2022. Liu drew the distinction clearly: “DeFi Summer was what got it started”; the subsequent 10x growth came from global liquidity expansion and the crypto bull market.
Zheng added that Coinbase’s behavior also changed. Before its IPO, it still had to serve Asia’s high-frequency users, who were accustomed to USDT, so USDC integration remained limited. Around its April 2021 IPO, compliance pressure rose sharply, while institutions and governments began paying attention to DeFi; Coinbase then fully integrated USDC and began recommending it to retail users.
12. UST’s Trust Dividend Was Wiped Out by a Single Bank Failure
After the UST/Luna collapse in May 2022, users who had previously “not cared” which stablecoin they held began to value strong backing and redeemability. USDC became the biggest beneficiary, rapidly closing the gap with USDT and at one point being viewed by the market as likely to overtake it.
The turning point came in March 2023. Circle had about $3.8B of reserves at Silicon Valley Bank, or roughly 8% of total reserves. After the bank failed, the funds were temporarily inaccessible, sending USDC from $1 to $0.92 within 2 hours. Hong Jun asked: “A single point of failure in traditional finance is pretty dangerous too.”
Zheng believes that if the Fed had not rescued Silicon Valley Bank and guaranteed the $3.8B, Circle would have struggled to fill the gap with its own capital and USDC might have depegged permanently. Supply subsequently fell from roughly $47B to below $30B, nearly halving from its peak by year-end.
Liu believes Silicon Valley Bank was only the direct shock. The larger pressure came from what he called the Biden administration’s “Choke Point 2.0”: access points such as Silvergate and Signature were constrained, and compliance exposed USDC more directly than offshore USDT to U.S. policy.
13. Reserve Structure and Chain Distribution Created Two Different Stablecoins
After Silicon Valley Bank, Circle became “once bitten, twice shy” and placed most of its reserves with Bank of New York Mellon, a bank considered too big to fail, leaving only a little over $1B at other banks to handle routine redemptions.
Zheng said Circle also signed a 4-year management agreement with BlackRock, assigning roughly 85% of its reserves to BlackRock. During the partnership, BlackRock cannot independently issue or support another stablecoin. The arrangement reduces operational pressure while binding a major traditional financial institution into the USDC system.
Of roughly $150B in USDT, nearly half is deployed on Tron and about 40% on Ethereum; the 2 chains together handle roughly 90%, with BNB Chain the third-largest. Solana has only about $2B. Of roughly $60B in USDC, Ethereum holds about $36B and Solana more than $8B, a markedly different chain structure.
This explains why a recovery in the Solana ecosystem can pull USDC higher, while USDT is more directly supported by offshore trading and Tron transfer demand. Public-chain choice is not a technical side issue; it directly determines where stablecoin liquidity grows.
14. Policy Reversal Took USDC from $34B Back to $62B
Liu described 2023–2024 as USDC’s most painful period. The banking crisis damaged trust, while regulatory pressure restricted on- and off-ramps; USDC did not approach its low until October 2024.
The emergence of a new president as a near certainty, together with expectations that U.S. crypto policy would turn supportive, created the next inflection point. USDC rose from roughly $34B at the end of 2024 to more than $62B at the time of recording, an increase of about 80% in roughly 6 months.
Liu distilled the outcome into 3 variables: crypto bull and bear markets determine total demand, policy matters especially for regulated stablecoins, and reserve safety determines user trust. The so-called Coinbase “unequal treaty” can persist partly because its backing helped USDC survive multiple rounds of trust shocks.
15. Tether’s Excess Profit Comes from Risks USDC Will Not Take
Zheng described USDC as a “good kid, good student” for years: it abandoned long-term U.S. Treasuries several years ago and mainly held bills with maturities under 3 months and overnight repo. At one point, the 2 together accounted for about 90% of reserves, a structure “very similar to Yu’ebao.”
Based on his reading of the GENIUS Act’s current language, Zheng estimates that about 82% of USDT’s reserves already qualify, while the remaining 18% includes roughly 100,000 BTC, 50 tonnes of gold, about $8.8B in collateralized loans, and equity investments. Under his description of the bill, reserves cannot hold Bitcoin or equity in commercial companies, so those assets still need to be addressed.
Tether’s earlier structure was more aggressive: commercial paper, corporate bonds, loans, and investments once made up roughly half its reserves. The market questioned whether it held dollar bonds tied to Chinese real estate or Evergrande notes; Tether denied it, but its exposure to corporate credit risk itself was not in dispute. Hong Jun warned: “Returns and risks always move together.”
Zheng breaks down Tether’s roughly $13B–$14B in net profit last year as follows: Treasury and repo interest may have contributed only $4B–$5B; the 18% of non-standard assets generated about $7B through Bitcoin, gold, and equities, while investments of its own capital added another $1.5B. With roughly 150 employees and almost no promotion costs, Tether’s and Circle’s margins diverge sharply.
16. Traditional Finance Can Issue Coins but May Not Be Able to Create Liquidity
Zheng believes that for traditional finance to use stablecoins for everyday payments and settlement, “only USDC is viable” in the U.S. today. Large venues such as CME are already considering USDC for real-time 24/7 settlement; the compliant route is Circle’s ticket into the market.
Hong Jun’s question deserves to be retained: if banks already have licenses, customers, and distribution, why don’t J.P. Morgan, Citi, or Bank of America issue their own coins? PayPal and Stripe also have ready-made payment use cases and will clearly pressure USDC’s share.
Can’s answer returned to distribution and liquidity. Even when PayPal used yields as high as 15%–20% to promote PYUSD, and PYUSD was active on Solana, total circulation still reached only about $900M, with too few trading pairs on centralized exchanges. Banks can achieve compliance, but may update their infrastructure too slowly.
Can therefore views stablecoins as a “winner-take-all market,” potentially leaving only one major regulated coin and one major offshore coin. Zheng refuses to bet on a specific winner; without the Silicon Valley Bank event, he believes USDC might already be number 1 today—“there is a huge amount of contingency in all this.”
17. The Two-Stage Rocket Determines Whether $2T Can Become Reality
Zheng’s “two-stage rocket” begins with cross-border and domestic B2B payments pushing stablecoins toward $2T over the next 2–3 years. If STOs then simplify processes and lower barriers at scale, “everything on-chain” could trigger a second explosion in transaction use cases.
USD1 shows how quickly B2B volume can scale. A single $2B MGX investment in Binance pushed USD1’s supply directly to about $2.1B. Hong Jun further imagined trade or commodity agreements expanding supply instantly; Zheng cautioned that this cannot be extrapolated freely—the recipient must recognize the asset and be capable of redistributing it to users.
The larger open question is that future stablecoins may not be dollar stablecoins alone. Cross-border trade and commodity settlement could introduce other currency units, while the extent of regulation’s extraterritorial reach over offshore issuers will reshape the competitive boundaries among currencies and issuers.
18. Mass Adoption Will Hide in the Backend First, Then Be Handed to AI Agents
Zheng divides the market into 2 ends. In high-inflation regions such as Latin America, Africa, and Turkey, users may already hold “U” or BTC to preserve purchasing power. Ordinary users in developed markets, by contrast, will not need to hold stablecoins first; they will use the rails invisibly when making cross-border payments.
His best example is remittances by Filipino domestic workers: a user hands over Hong Kong dollars at a 7-Eleven in Hong Kong, while a relative withdraws cash at a 7-Eleven in the Philippines. The backend may use Bitcoin or stablecoins, but the experience still resembles Western Union. No one needs to understand wallets, private keys, or blockchains.
PayFi companies therefore aim not to overturn the existing financial system but to “embed themselves invisibly” into banks and payment networks, lubricating the backend at lower cost and higher speed. Zheng estimates that card networks such as Visa and Mastercard could lose 5–8 gross-margin points and see revenue decline 20%–30%, but would still have to embrace the new rails.
When stablecoins finally become mainstream on the consumer side, the entry point may be an AI Agent: the user simply says, “Buy me $100 of BTC,” and the Agent handles the wallet and conversion. “Educating users is one of the stupidest things”; once stablecoins are as easy as WeChat Pay or Alipay, they may already dominate backend settlement without users knowing.